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2022 (3) TMI 114
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....Shivkrit Rai, Advocates JUDGMENT (Virtual Mode) [Per; V. P. Singh, Member (T)] 1. The present set of Appeals, i.e. Company Appeal (AT) (Ins) No. 164 of 2021, Company Appeal (AT) (Ins) No. 176 of 2021, Company Appeal (AT) (Ins) No. 218 of 2021 & Company Appeal (AT) (Ins) No. 219 of 2021 have been filed against a common impugned order dated 15.07.2021, passed by Adjudicating Authority/National Company Law Tribunal, Chennai Bench, Chennai,in whereby the Adjudicating Authority has approved the Resolution Plan for the revival of the Corporate Debtor, i.e. Appu Hotels Limited. Factual Background Company Appeals (AT) (CH) (Ins) 164 & 219 of 2021 Appellant's Contention: 2. The Appellant in the Company Appeal No. 164 & 219 of 2021 herein is the Promoter and erstwhile Director of the Corporate Debtor, M/s Appu Hotels Limited, subjected to CIRP based on the Application of Financial Creditor, namely, Tourism Finance Corporation of India limited (TFCIL). Consequently, Mr Mukesh Kumar Gupta was appointed as the Interim Resolution Professional (IRP), following which, Ist Respondent, i.e. Mr Radhakrishnan Dharmarajan (R-1), was nominated as the Resolution Professional by the Committee ....
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....However, the notice for the 1st CoC meeting was given on 18.06.2020, whereas 1st meeting was held on 22.06.2020, which was in blatant disregard to Regulation 19(1) of Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, which mandates that at least five days notice must be given before CoC meeting. 8. As a result, the entire CIRP process was rushed and marred with procedural inadequacies. After that, R-1, who took over from IRP in November 2020, had finalised the rest of the steps hastily and failed to place proper valuation reports before the CoC. As a result, CoC voted in favour of the Resolution Plan submitted by R-2 at Rs. Four hundred twenty-three crores, i.e. much lower than the liquidation value and just 25% of the Valuation of the assets made by the registered Valuer during September 2019. 9. Appellant stated that CoC had approved the Resolution Plan of R-2 without even considering the proposal put forth by the Appellant vide letter dated 21.01.2021 and 08.03.2021 for settling all the creditors and for withdrawal of the CIRP under section 12-A of I&B Code. The CoC has not considered the corporate debtor as a going ....
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....(4) of the Companies Act, 2013, which reads as follows: "Section 166 (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company." 14. The Appellant also submitted that IInd Respondent is a Director of a Company, namely, M/s International Aviation Academy Private Limited. It is seen from the audited financial statements of the said Company from 2010-11 to 2017-18 that a sum of Rs. 12,03,000/- has been collected as 'share application money pending allotment'. Therefore, it appears that the sum has not been refunded. As such, the same shall be treated as a deposit in terms of proviso to Explanation (a) of Rule 2(1)(c)(vii) of the Companies Act (Acceptance of Deposits) Rules, 2014. 15. In the above circumstances, given Section 164(2)(b) of the Companies Act, R-2 has been disqualified from acting as a Director in any company for five years from the date such Company failed to repay the deposit and even assuming these amounts have been repaid during the Financial Year 2018-19, R-2 is disqualified from acting as Director till date. Thus, R-2 is inelig....
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....Ranade, who is unconnected to the instant case. It is thus evident that the entire valuation process is tainted with fraud and malice. 19. The Appellant further contends that the IRP's public advertisement did not conform to the statutory guidelines provided under Regulation 6 of the CIRP Regulations. The Public Advertisement was neither published on the website of the Corporate Debtor nor was it published on the website of IBBI. Furthermore, Regulation 35(2) of IBBI Regulations, 2016 mandates that fair and liquidation values had to be provided to the member of CoC upon receipt of Resolution Plans. This was not done as admitted by the RP in the 5th CoC meeting. Also, The Invitation to submit Expression of Interest vide Form G itself was made on 17.08.2020, which was beyond the 75 days envisaged under Regulation 36A(2)(iii). The Information memorandum prepared by the IRP does not contain the requisite information in violation of Regulation 36(2) of IBBI Regulations, 2016. Based on the above, it is clear that the CIRP has been conducted in contravention to the IBBI Regulations and the Code. 20. The Appellant contends that the CoC ought to act not merely in its interest but as a....
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....ntions about the Valuation of the corporate debtor of 1600 crores is unsupported by any evidence. The fact remains that the resolution plan amount has arrived after following the due procedure prescribed under the Code and the rules and regulations made thereunder." 25. Ist Respondent has complied with the provisions of the I&B Code and IBBI Regulations, 2016, vide Regulations 27 and 35 and in the absence of any evidence to substantiate the alleged Valuation of Rs. One thousand six hundred crores, the issue about Valuation cannot be the subject matter of the Appeal. 26. The CoC discussed the issue with regard to the valuers in its second meeting held on 06.08.2020. So far, the appointment of the third Valuer is concerned; R1 in the 6th and 7th meeting of CoC duly apprised the members about the need for the appointment of the third Valuer under Regulation 35. As a result, R1 arrived at fair and liquidation values on the average of the two closest values as per Regulation 35(C) provisions. 27. The contention by the Appellant that two valuers who were originally appointed did not value the entire asset of the corporate debtor and had only valued the core assets is denied as it can ....
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....reased from Rs. 1.50 lakhs to Rs. 2.5 lakhs retrospectively, and some malice was attributed as the same is a quid pro quo to the Approval of the Resolution Plan. At the outset, there is no pleading in this regard. The increase in the fee resulted from an email date 16.01.2021 sent by R1 to the CoC, which was much before the Resolution Plan was considered on 22.01.2021. Company Appeal (AT) (CH) (Ins) 176 of 2021 Factual Background 32. Most of the facts under the present Appeal are similar to the facts stated in the above Appeal, therefore not reiterated for convenience. 33. The Appellant under present Appeal is a listed company in BSE with more than nine thousand shareholders. The Appellant approached this Tribunal against dismissing its applications, preferred in the underlying insolvency proceedings initiated against Corporate Debtor, i.e. M/s 'Appu Hotels Limited'. 34. The Appellant submitted two claims, one as a Financial Creditor for Rs. 4,81,62,175/- and one as an Operational Creditor for Rs. 1,94,14,024/- on 03.08.2020; the Appellant, in its claim, stated that while it may be a related party, it had a right to be inducted in the CoC by 2nd proviso to Section 21(2....
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....an be created for a purpose, it has to be shown that the law contemplates such a classification for this purpose. In the absence of a classification of a Related Party as a separate Class for payment of creditors under a Resolution plan, the same is impermissible in law and violative of the IBC and Article 14 of the Constitution of India. [Hiralal P. Harsora and Others v. Kusum Narottamdas Harsora and Others, (2016) 10 SCC 165]. 41. The Appellant also submits that In terms of Sections 43 & 44 of the Code and Regulation 35A, the RP was required first to file Avoidance Applications and obtain an order regarding the same prior to the Resolution Plan being filed. In the present case, the Forensic Audit Report regarding preferential transactions was given on 02.01.2021. However, before this could be done, the RP goes ahead with placing the Resolution Plan before the CoC for its Approval. The CoC approved the Plan on 22.01.2021. The RP files an Application on 04.02.2021 for Approval of the Plan and then on 22.01.2021moves, Avoidance Application. The NCLT, which should have first decided the Avoidance Applications, first approves the Plan and defers adjudication of the Avoidance Applicat....
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....R-1) 45. The Appellant challenged the impugned Order dated 15.07.2021 in MA/18/CHE/2021 in IBA No. 1459/2019, which is an application filed by the Appellant herein before the Adjudicating Authority. In addition, the Appellant filed an application in MA 48 of 2021 about its claim as a Financial Creditor, and by the common impugned Order, dismissed both the applications. Admittedly, no appeal has been preferred against MA 48/2021. Therefore, the Appellant cannot agitate its claim as a Financial Creditor in the present Appeal. 46. It is further submitted that the Appellant had not raised the valuation issue before the Adjudicating Authority, and its submissions were limited only to the admission of its claim and declaration that it was not a related party. Therefore, the Appellant cannot raise issues relating to Valuation in the present Appeal. 47. Respondents No-1submits that the admission of claims in CIRP is not an adjudicatory or judicial process. Instead, it is an administrative process resulting in admission and not an adjudication of claims. Consequently, the Appellant cannot superimpose the requirements of a judicial process on admission of claims. 48. It is further argued....
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.... the Hon'ble Supreme Court in Vijay Kr. Jain v Standard Chartered Bank, (2019) 20 SCC 455 at para 23 had categorically upheld the bar of a director of a related party of a Corporate Debtor to have any right of representation, participation or voting in a meeting of the CoC. 53. R-2 further submits that the definition of the related party as under Sec. 2(54), IBC and its consequence in Sec. 21 has been laid down by the Hon'ble Supreme Court in Phoenix ARC v Spade Fin Services, (2021) 3 SCC 475. The Hon'ble Supreme Court held that those entities in the CoC, who are related parties, can often negatively affect the insolvency process. It further went on to hold that the objects and purposes of the Code are best served when the CIRP is driven by external creditors to ensure that related parties of the Corporate Debtor do not sabotage the CoC. 54. It is also stated that the claim of a related party, whether in the nature of loan or otherwise, should rank subordinate to the claim of the Operational Creditors and should be treated at par with equity shareholders under Section 53(1)(h) of IBC, 2016 - J. R. Agro Industries P Ltd. Vs. Swadisht Oils Pvt. Ltd., [NCLT, Allahabad, C....
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....oys a bonanza of having obtained assets worth about Rs. One thousand six hundred crores for Rs. 423 crores. Such acts of CoC do not amount to the maximisation of the value of the Corporate Debtor and its stakeholders. 62. It is also contended on behalf of the Appellant that given the ratio laid down in the case of Committee of Creditors of Essar Steel India v. Satish Kumar Gupta and Others (2020) 8 SCC 531, the immunity attached to the commercial wisdom of CoC lies in the assumption that the CoC has access to all the documents and relevant material and therefore applies its business mind and arrives at a decision. Therefore, in light of the fact that in the instant case, the material itself has been compromised and various members of the CoC were excluded from the committee till 14.12.2020, it is amply clear that the CoC enjoys no immunity in the instant case. Ist Respondents Submissions /(Resolution Professional/ R-1) 63. It is argued by R-1 that the Appellant has no locus standi. Though the appellant claim that he is a shareholder, no documentary evidence has been filed to show that he is a shareholder. The issue of Valuation is only a repetition of the Promoter's argument....
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....esolution Plan - Ramasamy Palaniappan Vs Radhakrishnan Dharmaraja, Company Appeal (AT)(CH)(INS) No. 19 of 2021 (paras 20, 21, 28). 70. The issue concerning Valuation has attained finality vide the judgment of this Tribunal dated 05.05.2021 in Company Appeal (AT)(CH)(INS) No. 19 of 2021, whereby this Appellate Tribunal has upheld the valuation order while further recording that the Valuation of Rs. 1600 Cr as claimed by the Appellant herein is unsupported by any evidence. 71. It is also argued on behalf of R-2 that a Resolution Applicant is not required to match the liquidation value while submitting a Resolution Plan. [Ref;Maharashtra Seamless Limited v Padmanabhan Venkatesh, (2020) 11 SCC 467 at paras 27-30] & [State Bank of India v M/s Accord Life Spec Pvt. Ltd., (2020) SCC OnLine SC 554 at paras 3 and 4]. 72. It is further contended that Appellant's argument regarding conflict of interest of Respondent No. 2 and violation under Section 88 of Indian Trust Act, 1882 is denied. The aforesaid argument was never raised before the CoC and the Ld. Adjudicatory Authority. Respondent No.2 and Sri Balaji Vidyapeeth (trust) had submitted their Expression of Interest in their individ....
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....air Value and Liquidation Value of the Corporate Debtor is computed without physical verification of the Corporate Debtor's assets. Therefore, the entire valuation process of the Corporate Debtor is in total disregard of the Regulations. f) The Resolution Applicant is disqualified under Section 164 (2) (b) of the Companies Act 2013 hence ineligible under Section 29 A (e) of the Insolvency and Bankruptcy Code to submit a Resolution Plan. g) The COC does not approve the revised Resolution Plan. 76. Based on the pleadings of the parties following issue arises for our consideration ; Whether the approved Resolution Plan contravenes Section 30 (2) and Sec 61(3) of the Insolvency and Bankruptcy Code 2016? 77. The Appellant contends that the approved Resolution Plan is in contravention of section 30 (2) and Sec 61(3) of the Insolvency and Bankruptcy Code 2016. The Appellant raises the following points to show the violation of the statutory provision of Section 30(2) & 61(3)of the Code. A. Objections about Valuation of the Corporate Debtor The Appellant's contention about the valuation report is as under; (a) The Valuation Process conducted by the IRP and the RP is cont....
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....particulars of the other Valuer must be mentioned in the Valuation Report. The relevant provisions are extracted below: "Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 35. Fair value and Liquidation value (1) Fair value and liquidation value shall be determined in the following manner:- (a) the two registered valuers appointed under regulation 27 shall submit to the Resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the Resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate of the value computed in the same manner; and (c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be. (2) After the receipt of resolution plans in accordance with the Code and these regulations, the Resolution professional shall provide the fair....
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....ibility for the valuation report." (i) Therefore, the statutory provisions categorical state that Physical Verification must be done before completing the Valuation Process. The provisions also clearly state that the report must include the nature of the inputs and particulars of the registered Valuer. (j) Further, Regulation 27 read with Regulation 35 also mandates that two Registered Valuers value the Corporate Debtor's assets. It is an admitted fact that the two Registered Valuers appointed by the Resolution Professional did not value the non-core assets of the Corporate Debtor. The Resolution Professional admits to the same in the 6th Meeting of the CoC, and the aforesaid admission is found in the Minutes of the 6th meeting of the CoC. The RP also states that the non-core assets would need to be valued by another valuer. However, he did not appoint another valuer to undertake the valuation exercise for reasons best known to him. The Resolution Professional's only response to this blatant abdication of his duty is that the value of the Non-Core assets was not significant. (k) However, in lieu of the detailed valuation report, no member of the CoC or the Appellant h....
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....rovided. The legislative intent will be defeated if the IRP/RP can bypass this requirement by circulating raw numbers without evidence of the Valuers' practices in arriving at their valuation report. (p) Appellant contend that the Resolution Professional has hoodwinked the CoC by conducting an illegal, improper and mala fide valuation process. This has materially affected the Commercial Wisdom of the CoC and, in any event, the mere fact that the CoC had considered the issues and decided to brush it aside cannot set right statutory violations apparent on the face of the record. 78. Ist Respondent's (RP) response to the objection about Irregularities in Valuation of the Corporate Debtor is as follows; A. Valuation of assets and alleged irregularities in Valuation: 1. Two contentions have been raised on Valuation, namely (a) the Resolution Plan seeks to transfer assets worth more than Rs. 1600 crores for Rs. 423 crores and that the Committee of Creditors was not apprised of the actual value of the assets since the valuers were Delhi based and were not aware of the existing prevailing real estate market conditions and (b) Alleged Non-consideration of Section 12A proposal....
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.... liquidation value on the average of the two closest values as per Regulation 35 (c) provisions. In this connection, the attention of this Hon'ble Tribunal is also invited to the impugned Order, which deals with the valuation issue at length from paragraphs 74 to paragraph 84. An argument is raised that the two valuers who were initially appointed did not value the total assets of the Corporate Debtor and had only valued the core assets of the Corporate Debtor. 9. The reference to the minutes of the 6th CoC at page No.312 of Volume II of Appellant paper book is being read is out of context. A perusal of the said minutes of meeting under paragraph 3 would reveal the following fact:- i. The Non-Core Assets that the previous valuers did not value is around 3 to 4 crores, as against the total value of the non-core assets being 100 Crores. This was communicated to the members of the CoC on 15.12.2020. Thus it is futile on the part of the Appellant to contend that only Core Assets of the Corporate Debtor were valued. The Appellant is now trying to take advantage of this Respondent's non-inclusion of Expression of some of the Non-Core Assets in the Agenda Item No.2 of 6th Co....
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....masamy Palaniappan was unable to produce any evidence to show the actual Valuation on an earlier occasion, the Appellant cannot be prevented to produce such evidence to establish the illegality in the CIRP. 80. It is pertinent to mention that the Approval of the Resolution Plan by the COC is directly attributable to the fact that the COC was not properly apprised of the actual value of the Corporate Debtor's assets. The choices of the valuers by the IRP have been questionable since the 2nd COC meeting. The concern stems from the fact that the valuers were based in Delhi and had little knowledge of the prevailing real estate market conditions in Tamil Nadu. The circumstances were further separated by the fact that valuers lacked adequate experience with the hospitality industry. In this regard, it is pertinent to note the minutes of the 2nd COC meeting, which reads as follows; "At this juncture, the COC members have raised concerns regarding the appointment of the valuers as the appointed valuers are Delhi-based and are not privy to the area/properties of Tamil Nadu and might also a struggle to visit the collective sites of the corporate debtor located at Tamil Nadu given tha....
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....luation. Even in the 7th meeting of the COC, concerns were raised as to the fact that the Resolution Plan values the Corporate Debtor at a rate that is significantly lower than the already paltry Valuation arrived at by the IRP. Moreover, the RP himself admitted the aforesaid fact in the aforesaid meeting. 84. The Appellant further contends that it has come to notice that one of the registered Valuers appointed during the CIRP viz, Mr Vikas Agarwal, is not a registered valuer, as seen from the official website IBBI. The purported Registration No. IBBI/RV/07/2019/12, 228 belongs to Mr Sanjay Suresh Ranadey, who is not connected to the case. The Appellant has also annexed the search result extracted from the official website of the IBBI in this regard. It is thus evident that the entire process of Valuation is tainted with fraud and mala fides. 85. The learned Senior Counsel for the Appellant adverted to the observations of the Adjudicating Authority in the paragraphs 66, 81, 90 & 91 of the Impugned Order, which is reproduced below for ready reference; "66. In relation to the sharing of the valuation report, it was submitted by the Learned Senior Counsel that Regulation 35 of the....
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....llenge the same before this Adjudicating Authority on ostensible grounds. 90. It is significant to note here that, a statutory provision regulating a matter of practice or procedure will generally be read as directory and not mandatory. Thus, even though the objectors to the Resolution Plan have alleged many procedural irregularities in relation to the conduct of the proceedings in relation to the CoC; however those objectors have miserably failed to establish as to what prejudice has been caused to them in respect of the same. Further, a person who has been inducted as a member of the CoC in its 6th meeting cannot be allowed to question the actions taken by the CoC in the past meetings. However, in relation to the objections raised by the Applicants in IA/181/CHE/2021 and IA/183/CHE/2021, this Tribunal is unable to comprehend their objections in relation to the Plan, especially when they are getting 100% of their claim amount to be paid by the Resolution Applicant. Hence, this raises a suspicion as to whether that these Applications as filed by the objectors are motivated. 91. Thus, the objections as raised by the objectors in relation to the procedural irregularities in relat....
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....aid unsecured creditors from the entire decision-making process. Non-Publication of Form-G As Per Regulation 36A(2) (iii) of the IBBI Regulations for Corporate Persons, 2016 90. As per Regulation 36A(2)(iii), the RP shall publish 'Form-G' on the Corporate Debtors and IBBI websites. This would ensure adequate publicity to all prospective Resolution Applicants. This was admittedly not done by the RP. The IRP published the Form-G only in a newspaper. 91. In fact, in the 5th CoC Meeting dated 12.11.2020, while discussing whether 'Form G' should be re-published, the present RP points out that it was not published on the IBBI website, which may lead to litigation in the future. However, no steps were taken to re-publish 'Form-G' and invite fresh bids despite this. This was done despite the exclusion of the period between 05.05.2020 and 31.10.2020 from the period of CIRP by the Ld. Tribunal. 92. A plea regarding non-compliance of Regulation 36A of IBC has explicitly been taken by the Appellant in its Affidavit objecting to the Plan before the Ld. Tribunal. The impugned order itself records that the plea of non-compliance of regulation 36A was raised. 93. Non-publication of 'Form-G' ....
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....sion of Interest was essential. It is also important to point out that the Government of India also brought some amendments in the Code considering the impact of the Pandemic. Relevant Regulation about inviting 'EOI' is given below for ready reference; Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [36-A. Invitation for expression of interest.- (1) The resolution professional shall publish brief particulars of the invitation for expression of interest in Form G of the Schedule at the earliest, not later than seventy-fifth day from the insolvency commencement date, from interested and eligible prospective resolution applicants to submit resolution plans. (2) The resolution professional shall publish Form G- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the resolution professional, the corporate debtor conducts material business operations; (ii) on the website, if any, of the corporate debtor; (iii) on the website, if any, designa....
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....he corporate insolvency resolution process; (f) an undertaking by the prospective resolution applicant that every information and records provided in expression of interest is true and correct and discovery of any false information or record at any time will render the applicant ineligible to submit resolution plan, forfeit any refundable deposit, and attract penal action under the Code; and (g) an undertaking by the prospective resolution applicant to the effect that it shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29. (8) The Resolution Professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of Section 25; (b) the applicable provisions of Section 29-A, and (c) other requirements, as specified in the invitation for expression of interest. (9) The resolution professional may seek any clarification or additional information or document from the prospe....
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.... time, IInd Respondent proposes in the Resolution Plan to convert the 'Coimbatore property' of Corporate Debtor into a hospital, which would directly conflict with 'MGM Healthcare' interest. Therefore, the Resolution Plan submitted by R-2 is hit by Section 166(4) of the Companies Act, 2013, which reads as follows: "Section 166 (4) A director of a company shall not involved in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company." 102. In reply to the Appellants argument, the Resolution Professional submits that Resolution Applicant was not disqualified from being a director in response to the above allegations. There was no material to show that RA Resolution Applicant was hit by any provisions of section 29 A of the Code. The contentions raised by the Appellant based on the Companies (Acceptance of Deposits) Rules, 2014, the other provisions of Companies Act, 2013 and the trust act are factually and legally incorrect. 103. In response to the allegations of the Appellant, the Successful Resolution Applicant SRA submits that; a. The aforesaid argument of violation of Sec. 88 of....
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....urther, the Resolution Plan does not, in any manner, get affected. The Plan does not contravene any provisions of the law. 104. Regarding the above averments, the Ld. Senior Counsel for the Appellant submitted that the 2nd Respondent is the Managing Trustee of 'Sri Balaji Vidyapeeth', which features in Final List Prospective List of Resolution Applicants. The IInd Respondent suppressed the fact from the CoC that the 'Sri Balaji Vidyapeeth' Trust was a prospective Resolution Applicant and was found ineligible. 105. The CoC was merely informed that one of the PRA Prospective Resolution Applicant charitable trusts was not authorised to take up this activity. However, the rejected Trust was none other than the 2nd Respondent's Trust, namely 'Balaji Vidyapeeth', which was never disclosed to the COC and has been deliberately suppressed. The IRP/ Resolution Professional should have informed the CoC that the 2nd Respondent had presented the Resolution Plan by competing with the said Trust. He has used the very same ''Trust' to support his credentials and creditworthiness in the Resolution Plan. The relevant portions of the Resolution Plan are extracted hereund....
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....ot contravene any of the provisions of law for the time being in force. 108. It is illogical and fallacious to claim that the Resolution Plan can be tested in terms of the provisions of IBC, 2016 and not under Section 88 of the Indian Trusts Act. Therefore, it is submitted that even as per the provisions of IBC, a Resolution Plan shall be by the provisions of all other statutes, and the Resolution Plan mustn't contravene the law of the land. In this regard, it is pertinent to note Sections 30 and 61 of the Code, which reads as follows: "Section 30. Submission of Resolution Plan. - (2) The Resolution professional shall examine each resolution plan received by him to confirm that each resolution plan - ... (e) does not contravene any of the provisions of the law for the time being in force. .... Section 61. Appeals and Appellate Authority. - (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely: -- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force;." 109. The argument of the 2nd Respondent that the Trust had submitted their EOIs indepen....
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....een refunded. As such, the same shall be treated as a deposit in terms of proviso to Explanation (a) of Rule 2(1)(c)(vii) of the Companies Act (Acceptance of Deposits) Rules, 2014. 115. In the above circumstances, given Section 164(2)(b) of the Companies Act, R-2 has been disqualified from acting as a Director in any company for five years from the date such Company failed to repay the deposit and even assuming these amounts have been repaid during the Financial Year 2018-19, R-2 is disqualified from acting as Director till date. Thus, R-2 is ineligible to submit the Resolution Plan under Section 29 A (e) of the I&B Code. However, R-2 deliberately suppressed the same and submitted the Resolution Plan fraudulently. Unfortunately, IRP and RP( R-1) failed to conduct proper due diligence and report the above statutory violation to CoC or the Adjudicating Authority. 116. In response to the above, the Ld Senior Counsel for the IInd Respondent submits that; a) The aforesaid argument of Sec. 164(2)(b),2 Companies Act, 2013 was never raised by the Appellant before the CoC and the Ld. Adjudicatory Authority and even on the grounds of Appeal. Further, the Appellant herein has no locus to ....
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....offence punishable with imprisonment - (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any law for the time being in force; 5 is disqualified from acting as a director under the Companies Act, 2013 (18 of 2013); a. is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; b. has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code; c. has executed (a guarantee) in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code [and such guarantee has been invoked by the creditor and remains unpaid in full or part; d. ......... e. ......... e) It is undeniable that neither any of the aforesaid events have actually happened with respect to Respondent No. 2 nor any competent authority under the rele....
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....Act, the 2nd Respondent has been disqualified from acting as a Director in any Company for five years from the date on which the said Ms International Aviation Academy Private Limited failed to repay the deposit amounts collected towards 'share application money pending allotment' aggregating to Rs. 12,03,000/-. 120. Even assuming these amounts have been repaid during 2018-2019, the 2nd Respondent is disqualified from acting as a director to date. Thus, the 2nd Respondent is not eligible to act as a resolution applicant as per Section 29-A(e) of the Code. The audited balance sheets of the said M/s. International Aviation Academy Private Limited for the years from 2011 to 2018. 121. The 2nd Respondent has suppressed the above facts and has submitted the Resolution Plan by giving a false declaration that he does not suffer from any disqualification. Now, the 2nd Respondent has claimed that Rs. 12,03,000/- was paid by himself to the said M/s. International Aviation Academy Private Limited and that him being a member/ Director of the said Company, such payment would not amount to 'deposit' as per Rule 2(1)(c)(viii) of The Companies (Acceptance of Deposits) Rules, 2014....
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....on Professional to send the Plan back to the 2nd respondent to comply with Section 30(2) of the Code. After that, the revised resolution plan dated 25.01.2021 was never placed before the CoC for its Approval and has been directly placed before the Adjudicating Authority. (ii) The impugned order is therefore in violation of Sections 30(2), 30(4), 30(6) and 31, IBC, which mandate that only a plan as approved by the COC can be presented to the NCLT for its Approval under section 31. (iii) In this regard, the Appellant relies upon the judgment of this Hon'ble Appellate Tribunal dated 29.09.2021 rendered in Dinesh Gupta vs Vikram Bajaj Liquidator M/s Best Foods Ltd. 128. In response to the above objection of the Appellant, the Resolution Professional in its Revised Written Submission wherein stated that; "A perusal of the 9th minutes of the COC would reveal that the COC had approved the resolution plan and the RA was requested to revise the same in line with section 53 of the Code read with section 30 (2). The commercial decision with regard to Approval of the Plan was taken by the COC, which is evident from the minutes of 9th COC." 129. The Revised Resolution Plan dated 25 ....
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....val of the Resolution Plan by COC entire exercise for revising the Resolution Plan for making a complaint with Section 30 (2) of the Code was left with the Resolution Applicant. Revised Resolution Plan dated 25 January 2021, without further approval of CoC, was presented by RP before the Adjudicating Authority for approval, which was finally approved by the impugned Order. 133. It is also important to mention that the learned Adjudicating Authority/National Company Law Tribunal has stated in the impugned order that "it is seen that the final resolution plan was put up for consideration by the COC in the 9th meeting held on 22 January 2021 and the said resolution was approved with a thumping majority of 87.39%." 134. The Adjudicating Authority failed to notice that the Resolution Plan was not approved in the 9th COC meeting. Therefore, based on the resolution of the 9th COC meeting, the Resolution Plan was to be sent back to the Resolution Applicant for further revision. After that, the final Revised Resolution Plan was made on 25 January 2021, but it was never presented before the COC for approval. 135. After "revision", the revised plan is never put to the vote. Instead, it is ....
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....been provided. There appears to be no intention to give the promoters a chance to resolve the Company on their own while settling all the creditors. The failure to provide an opportunity is contrary to the intention of the Code and the principles of natural justice. (e) The Form FA has to be submitted only by the Applicant Financial Creditor after the proposal floated by the promoters is considered. Only after the proposal has been accepted by 90% of the Committee of Creditors, the Applicant Financial Creditor has to file the proposal as per Form FA. Therefore, the Resolution Professional cannot disregard the proposal for the conduct of a meeting of the CoC on such an untenable and superficial ground. Nevertheless, the Promoters are still willing to present their proposal under Section 12A, under which all financial creditors would be paid upfront in an expedited manner. This would accrue to the benefit of all members of the Committee of Creditors and ensure that the value of the Corporate Debtor is maximized. Therefore, the objectives of the Insolvency and Bankruptcy Code would be fulfilled. 2. Since the proposal of the Appellant was not even discussed in the COC meeting, the....
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....rding the Appellant's contention of adequate funding through a Letter by one Saveetha Institute of Medical Science dated 14.07.2021 as proof of funding, the Respondent submits that; a. The aforesaid letter was procured almost a month after the Ld AA/NCLT reserved the judgment. b. Further, such alleged proof of funding was never produced before the CoC. (pg. 25 of R-2 counter) c. Pertinently, the aforesaid letter by Saveetha Institute of Medical Science has been withdrawn vide email dated 02.09.2021. (pg. 13 of the CoC affidavit filed by R-1 dated 09.09.2021) and therefore, is no more available to the Appellant for reliance. 137. However, the Appellants, in response to the 2nd Respondent's submissions, stated that R-2 does not have any locus to question the efforts of the Appellant taken towards the one-time settlement of the creditors. 138. In response to the 12A application Resolution Professional in its affidavit, states that "the CIRP of the corporate debtor was initiated on an application by the TFCIL pursuant to order dated 5 May 2020. There is used public money which is at its stake by way of claims of several secured and unsecured Financial Creditors of about 390 cro....
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....ard the proposal for conducting a meeting of the CoC on such an untenable and superficial ground. 141. It appears that based on the settlement offer, the appellant sent a letter to the Financial Creditor Tourism Finance Corporation of India that an investor has expressed its willingness to infuse funds of 350 crores to settle the secured Financial Creditors in full within 30 days. This amount will be deposited in the current account. Regarding the claims made by other Unsecured Financial Creditors, Operational Creditors, implies, and other stakeholders, it will be settled after discussion with them and out of the generation of funds from the company's operation. In the circumstances, the appellant requested to accept the settlement so that the 12 A application may be submitted before the NCLT. The term sheet of the Deutsche Bank was also annexed with the settlement offer. 142. It is also necessary to mention that when the appeal was filed, then on the 1st date of admission of the Appeal, i.e. 30 July 2021, the learned counsel for the appellant made a statement in the court that the appellant would deposit Rs. 450 crores. Therefore, he requires 2 or 3 days. Since the total Res....
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....sal submitted by the Appellant. Although, after getting the settlement proposal, it was incumbent upon the resolution professional to call the COC meeting to consider the settlement proposal. It is essential to mention that the settlement offer could not have been rejected without consideration by the COC. 145. In the Company Appeal mentioned above, CA (AT) (Ins) 176 of 2021 Resolution Plan is challenged on the ground that the Resolution Plan is violative of the IBC and Article 14 of the Constitution; there has been a material irregularity in the exercise of the powers by the RP, and the Appellant who is also an Operational Creditor has not been provided for. 146. Resolution Plan is Discriminatory i. The appellant contends that the Resolution Plan discriminates against the Appellant by providing no payment to it on the ground that it is a Related Party, even though the debt is admitted. The IBC does not permit discriminatory plans to be approved. Binani Industries (Supra) was challenged before the Hon'ble Supreme Court was dismissed. ii. Reliance on JR Agro Industries P. Ld. v. Swadisht Oils Pvt. Ld., ]Company Appeal No. 59 of 2018, dated 24.07.2018 (@Pg. 10-60 of R2'....
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....Financial Services Limited, 20213 SCC 475 [Paras 63, 81-82, 98-99 @Pgs. 286-339] the Hon'ble Supreme Court dealt with in detail the reason for treating related parties as a separate class and held that they are excluded from the CoC so that they do not impede and interfere with the Resolution Process. This rationale is achieved by excluding them from the CoC and submitting Resolution Plans. However, for payment under the Resolution Plan, there is no reason to treat them as a separate class. vii. Further, in the present case, the minutes of the CoC Meetings clearly show that no discussion whatsoever has taken place on the reasons for exclusion of Related Party from the payments to be made under the Resolution Plan. On the contrary, even in the 7th and 8th COC Meetings, a certain amount is set apart for Related Parties. However, in the final plan approved in the next meeting, no amount is paid to the Related Party, and no discussion in the CoC for the same is recorded. viii. The Appellant contends that there was no application of mind, let alone the commercial wisdom of the CoC while approving the resolution plan regarding the exclusion of the claims of Related Parties. Howev....
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....ument 147. IInd Respondent No. 2 submits that, given the argument that there cannot be discrimination towards the debt owed, on the basis that the Appellant is a related party under Sec. 5(24), IBC and the Appellant ought to be treated equally to an unrelated operational, Financial Creditor given the equality clause enshrined under Article 14 of the Constitution of India. 148. The Ld. Adjudicatory Authority vide impugned judgment, in para 33 observed as under: "33. In so far as admission of the claim is concerned, it is seen from the resolution plan that the claim of the applicant has been admitted by the RP both in the capacity as an operational creditor and financial creditor; however the applicant was classified as "Related Party" of the corporate debtor. However, during the course of submissions, the learned senior counsel Mr Satish Parasaran, submitted that there is discrimination in relation to the distribution of the amount by the resolution applicant. It is seen that no such pleading has been made in the application in relation to the discrimination of the amount being made to the related parties in the resolution plan, and the present application has been filed only wi....
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....f the view that claim of a related party, i.e. Jya Finance and Investment Company Limited should rank subordinate to the claim of operational creditors and treated at par with equity shareholders are partners under waterfall principle under section 53(1)(h) of the Code." "Thus, we hold that the debt of Rs. 36.6643 crore of Jaya Finance & Investment Co. Ltd., which is admittedly a related party of the corporate debtor should fall in the category of "equity shareholders are partners" as provided in section 53(1)(h) of the Code. Their claim will be treated at par with equity shareholders are partners, who are other unsecured creditors they rank below the operational creditors of the corporate debtor." (verbatim copy emphasis supplied) 153. The NCLT in JR Agro had equated a related party with equity shareholders or partners as provided under Section 53(1)(h) of the Code and ranked lower in level than the obligation due to unrelated Financial Creditors. Accordingly, it further held that non-allocation of the fund by the Resolution Applicant, in the case in hand, to the related party of the Corporate Debtor does not contravene the waterfall mechanism as provided in Section 53(1)(h) ....
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....he CoC decided not to pay anything to the Appellant as it is a related party to the Corporate Debtor. 159. The Learned Senior Counsel for the IInd Respondent, to bolster his argument adverted to the observations of the Hon'ble Supreme Court in paragraphs 12,25,27,36,41&42 of the Hon'ble Supreme Court in case of Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd. (Monitoring Committee), (2021) 10 SCC 623, wherein it is observed that observe that; "12. NCLAT by its judgment dated 4-1-2021 [Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd., 2021 SCC OnLine NCLAT 384] rejected the appeal. NCLAT noted that there was no substance in the grievance that the operational creditors had been unfairly or inequitably treated in regard to the distribution of funds. As a matter of fact, operational creditors (other than related parties and statutory creditors) were allocated 19.62% of the upfront payment of Rs. 3720 crores, while the financial creditors were paid only an amount of 10.32% of the upfront payment. The approved resolution plan, NCLAT observed, ensures restructuring and revival of the corporate debtor. 25. The resolution plan was approved by the CoC, in compliance with the ....
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....bbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , wherein a two-Judge Bench of the Court, speaking through R.F. Nariman, J., observed : (Swiss Ribbons case [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , SCC p. 69, para 51) "51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code." 42. In Essar Steel India Ltd. [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531: (2021) 2 SCC (Civ) 443], this Court held that "the UNCITRAL Legislative Guide ... makes it clear beyond any do....
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.... creditors laid down in section 53 (1) of IBC. 162. In the instant case of approved resolution plan discriminates between related party unsecured Financial Creditor and other unsecured Financial Creditors, likewise related party operational creditors and other operational creditors. The appellant argues that its claim ought to be treated equally to an unrelated Operational/ Financial Creditor given the equality clause enshrined under Article 14 of the Constitution of India. 163. IInd Respondent further relied on the judgement of Hon'ble Supreme Court in case of Vijay Kumar Jain v. Standard Chartered Bank, (2019) 20 SCC 455 wherein it is observed that: "23. The argument on behalf of the Committee of Creditors based on the proviso to Section 21(2) is also misconceived. The proviso to Section 21(2) clarifies that a Director who is also a financial creditor who is a related party of the corporate debtor, shall not have any right of representation, participation, or voting in a meeting of the Committee of Creditors. Directors, simpliciter, are not the subject-matter of the proviso to Section 21(2), but only Directors who are related parties of the corporate debtor. It is only such p....
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....law should specify the creditors that are eligible to be appointed to a committee. Creditors who may not be appointed to a creditor committee would include related persons and others who for any reason might not be impartial. The insolvency law should specify whether or not a creditor's claim must be admitted before the creditor is entitled to be appointed to a committee." In interpreting the legislation, which represents a Parliamentary effort to bring about structural changes in the resolution of corporate insolvencies, the effort of the court must be to aid the fulfilment of the objects of the IBC." 165. In the case of Jya Finance and Investment Company Ltd. vs J.R. Agro Industries Pvt. Ltd ., 2018 SCC OnLine NCLAT 100, the Appellate Tribunals finding is given as under; "1. The Appellant 'Jya Finance and Investment Company Ltd.', one of the Financial Creditor has challenged judgment dated 24th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Allahabad Bench whereby and whereunder the resolution plan submitted by the 3rd Respondent - 'Rajasthan Liquor Ltd.' has not been accepted by the Adjudicating Authority with following observations:-....
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.... the related party of the corporate debtor cannot misuse the provisions of Sec. 53 of the Insolvency and Bankruptcy Code, 2016 to defraud their creditors. List the matter on 31st July, 2018 for further consideration." 2. The appeal was preferred by the Appellant on the ground that the Adjudicating Authority has failed to consider that the 3rd Respondent met all the requirements of Section 30(2) of I&B Code r/w Regulation 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations. However, such submission was not accepted by the Appellate Tribunal when the matter was earlier heard. 3. In 'Binani Industries Limited v. Bank of Baroda appeals' in Company Appeal (AT) (Insolvency) No. 82 of 2018, etc. this Appellate Tribunal held that no discrimination can be made against same set of creditors on one or other ground. 4. For the reason aforesaid, the 3rd Respondent - 'Rajasthan Liquor Ltd.' sought time to submit modified resolution plan and by our order dated 20th September, 2018 we allowed the 3rd Respondent to modify the same. 5. The Resolution Professional has filed a report enclosing a copy of the modified resolution plan submitted by the 3rd....
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....uding priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by India's Insolvency and Bankruptcy Board. In other words, the decision to approve a resolution plan is entrusted to the CoC with the rider that Plan has taken care of the priority given u/s 53(1) of the Code. In the instant case, the approved plan does not conform to the order of priority provided u/s 53 (1) of the Code. It provides nil value to related party Financial and Operational Creditors. Sec 53 of the Code is given as under for ready reference; 53. Distribution of assets.-(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following- (i) workmen's dues for the period of twenty-four months preceding th....
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....n 53, not in the context of priority of payment of creditors, but only to provide for a minimum payment to operational creditors. However, this again does not in any manner limit the Committee of Creditors from classifying creditors as financial or operational and as secured or unsecured. Full freedom and discretion has been given, as has been seen hereinabove, to, which they would otherwise be able to realise outside the process of the Code, thereby stymying the corporate resolution process itself." 169. In the case-law cited above, the Hon'ble Supreme Court has clarified that the CoC power is not limited to classifying creditors as Financial or Operational and secured or unsecured. 170. It is pertinent to mention that Hon'ble Supreme Court in Phoenix Arc v Spade Fin Services, (2021) 3 SCC 475. The Hon'ble Supreme Court held that those entities in the CoC, who are related parties, can often negatively affect the insolvency process. It further went on to hold that the objects and purposes of the Code are best served when external creditors drive the CIRP to ensure that related parties of the Corporate Debtor do not sabotage the CoC. 171. It is important to mention that ....
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.... the IBBI (IRPCP) Regulations 2016 contemplates sharing of only fair value and liquidation value figures on obtaining confidentiality undertaking from the members of the CoC is incorrect. Finding that Since the Promoter is not a member of the CoC, the values were shared with the Promoter and that there are no requirements under the law for the RP to share the valuation report is also erroneous. 176. A valuation consisting of mere naked values without a detailed report is not valid. It is a settled proposition that the Valuation exercise is conducted to facilitate the CoC's decision-making process. Therefore, the existence of a valid and accurate valuation report is a sine qua non for the COC to exercise its commercial wisdom. A natural sequitur to those above would be that a detailed valuation report is necessary for the CoC to exercise its commercial wisdom objectively. 177. The Adjudicating Authority's observation that a statutory provision regulating a matter of practice or procedure will generally be read as a directory and not mandatory is erroneous. Compliance with statutory requirements in regulating a matter of practice and procedure are mandatory. The Tribunal is a c....